Protesters voice their disapproval of the Obama Administration’s HHS mandate that will obligate Catholic organizations to provide contraceptive services to their employees. (AP Photo/Matt York)

(CNSNews.com) - In a 2-1 ruling on Friday, a federal appeals court in Chicago upheld the rights of both individuals and companies to challenge Obamacare's contraception-abortifacient-sterilization mandate.

It is the first decision of its kind in the ongoing litigation against the requirement that all employers -- despite their deeply held religious beliefs -- must arrange and pay for employee health insurance that covers no-cost contraceptives, abortion-inducing drugs, and sterilization, under penalty of fine.

"This is a significant victory for protecting the religious beliefs of individuals and corporations," said Edward White, senior counsel of the American Center for Law and Justice, who represents one of the plaintiffs, an Illinois company.

"It is also important to note that the appeals court determined that the HHS mandate should not move forward against our clients while this issue is being litigated. It has been our position from the beginning that the HHS mandate violates America's longstanding history of protecting conscience rights. The mandate is unlawfully compelling employers such as our clients to do the following: abandon their faith to comply with the law, or follow their faith and pay significant annual penalties to the federal government. The decision by the appeals court is encouraging as this issue heads to the Supreme Court."

The ACLJ represents Korte & Luitjohan Contractors, Inc., a family owned, full-service construction contractor located in Highland, Illinois. The company provides a group health insurance plan for its non-union employees, which number about 20. Cyril B. Korte and Jane E. Korte own a controlling interest in the company and contend the HHS mandate violates their Catholic faith. The ACLJ filed a federal lawsuit on behalf of both the individuals and the company in October 2012.

On Friday, the U.S. Seventh Circuit Court of Appeals became the first court to determine that both the owners and their company have religious liberty rights that are burdened by the HHS mandate, White said.

"The Seventh Circuit also determined that the federal government did not show any significant interest that overrides the religious liberty rights of our clients, and, even if it had such an interest, the federal government did not show, as it is required to do, that it cannot achieve its interest in ways that are less damaging to religious-exercise rights," he wrote.

The case, Korte v. Sebelius, is one of 40 filed by for-profit business owners who say the HHS mandate violates their religious liberty.

In the ruling issued Friday, the court noted that the HHS mandate "requires employers to provide coverage for contraception and sterilization procedures in their employee health-care plans on a no-cost-sharing basis. Noncompliance carries heavy financial penalties and the risk of enforcement actions."

The plaintiffs are two Catholic families and their closely held corporations—one a construction company in Illinois and the other a manufacturing firm in Indiana. The businesses are secular and for profit, but they operate in conformity with the faith commitments of the families that own and manage them.

The plaintiffs object for religious reasons to providing the mandated coverage. They sued for an exemption on constitutional and statutory grounds.

Center stage at this juncture is the Religious Freedom Restoration Act of 1993 (“RFRA”), 42 U.S.C. §§ 2000bb et seq., which prohibits the federal government from placing substantial burdens on “a person’s exercise of religion,” id. §2000bb-1(a), unless it can demonstrate that applying the burden is the "least restrictive means of furthering...[a] compelling governmental interest," id. § 2000bb-1(b).

Focusing primarily on their RFRA claims, the plaintiffs in each case moved for a preliminary injunction. The district judges denied relief, holding that the claims were not likely to succeed. We provisionally disagreed and enjoined enforcement of the mandate pending appeal.

The appeals have now been briefed and argued and are ready for decision. Plenary review has confirmed our earlier judgment.

These cases—two among many currently pending in courts around the country—raise important questions about whether business owners and their closely held corporations may assert a religious objection to the contraception mandate and whether forcing them to provide this coverage substantially burdens their religious-exercise rights.

We hold that the plaintiffs--the business owners and their companies -- may challenge the mandate. We further hold that compelling them to cover these services substantially burdens their religious-exercise rights.

Under RFRA the government must justify the burden under the standard of strict scutiny. So far it has not done so, and we doubt that it can.

Because the RFRA claims are very likely to succeed and the balance of harms favors protecting the religious-liberty rights of the plaintiffs, we reverse and remand with instructions to enter preliminary injunctions barring enforcement of the mandate against them.